Dynamically regulated cell adhesion plays an important role during animal morphogenesis. Here we use the formation of the visual system in Drosophila embryos as a model system to investigate the function of the Drosophila classic cadherin, DE-cadherin, which is encoded by the shotgun (shg) gene. The visual system is derived from the optic placode which normally invaginates from the surface ectoderm of the embryo and gives rise to two separate structures, the larval eye (Bolwig's organ) and the optic lobe. The optic placode dissociates and undergoes apoptotic cell death in the absence of DE-cadherin, whereas overexpression of DE-cadherin results in the failure of optic placode cells to invaginate and of Bolwig's organ precursors to separate from the placode. These findings indicate that dynamically regulated levels of DE-cadherin are essential for normal optic placode development. It was shown previously that overexpression of DE-cadherin can disrupt Wingless signaling through titration of Armadillo out of the cytoplasm to the membrane. However, the observed defects are likely the consequence of altered DE-cadherin mediated adhesion rather than a result of compromising Wingless signaling, as overexpression of a DE-cadherin-alpha-catenin fusion protein, which lacks Armadillo binding sites, causes similar defects as DE-cadherin overexpression. We further studied the genetic interaction between DE-cadherin and the Drosophila EGF receptor homolog, EGFR. If EGFR function is eliminated, optic placode defects resemble those following DE-cadherin overexpression, which suggests that loss of EGFR results in an increased adhesion of optic placode cells. An interaction between EGFR and DE-cadherin is further supported by the finding that expression of a constitutively active EGFR enhances the phenotype of a weak shg mutation, whereas a mutation in rhomboid (rho) (an activator of the EGFR ligand Spitz) partially suppresses the shg mutant phenotype. Finally, EGFR can be co-immunoprecipitated with anti-DE-cadherin and anti-Armadillo antibodies from embryonic protein extracts. We propose that EGFR signaling plays a role in morphogenesis by modulating cell adhesion.